Archive for February, 2007

This week I published my second case study on Startup Review. A short summary of the study is below. Startup Review’s founder, Nisan Gabbay, is a great guy who came up with a brilliant idea to analyze successful internet companies and accumulate a library of strategies, tips and tricks other entrepreneurs can use. I am pleased to have been named a co-author on the blog and I am working on a new batch of studies now.

Jumpcut Case Study ExcerptJumpcut is an online community for video creators. Jumpcut provides free video editing tools that let consumers upload short video segments and edit them online to add music and effects. Its Flash-based tools attracted immediate attention in the blogosphere and from consumers, resulting in the company’s acquisition by Yahoo! approximately six months after launch.

Because of its short operating history, Jumpcut makes an interesting study of the launch phase of a business without considering subsequent growth. The company (the business’s legal name was MiraVida Media, Inc. prior to the acquisition) worked very quickly to develop its product and build a team, and was then acquired before the product had time to make more than an early dent in the market.

The UN’s Intergovernmental Panel on Climate Change released a major report at the beginning of February concluding that increasing average global temperatures are at least 90% likely to be the result of human activity. The group’s last report was released in 2001 and found human causation between 66-90% likely, so the finding is significant.

Major changes are in store (whether the threat is addressed or avoided) in energy production, renewable and non-renewable resource use, agriculture and water consumption, among other areas. Such changes entail great risk, and also great opportunity for business- those that can figure out how to work under and profit from the new rules are likely to do very well.

The “venture ecosystem” consisting of startup companies and the venture capitalists and others who help build them is well suited to address this growing area. In addition to capital and a strong pool of management talent, the ecosystem allows individuals and companies to fail and try again. A thousand flowers may sprout, and a few will bloom.

In this vein, Richard Branson’s announcement of a $25M prize for the first person to develop technology to remove 1 billion pounds of CO2 from the atmosphere is a wonderful carrot to hold out for innovators everywhere. Just as Elon Musk’s X Prize (now expanded well beyond his original offer) spurred competition to develop a launch-and-return space vehicle, we can hope that Branson’s prize will bring attention and resources to the problem of increasing CO2 accumulation.

At the same time, it is important keep an eye on the whole picture- technology can’t and won’t solve all problems. Technology-based solutions are immensely attractive because they promise to increase efficiency and reduce waste without really changing our behavior. I call this the “Prius Principle”- we don’t drive less, we just do it in a less-polluting vehicle.

I don’t mean to disparage this approach. Every bit certainly helps. I like the phrase, though, because it makes it easy to see the drawbacks. Imagine if all 6 billion people on the planet- or even half of them- all drove Priuses 14,000 miles per year like the average American. The net impact of so many people doing such activities would not be positive.

I strongly believe that innovation in energy production and storage, water management and food production will ease the burden of transitioning away from CO2 dependence. At the same time, as Jared Diamond observes in his great book Collapse, new technologies solve many problems, but almost always cause new ones in the process (he cites CFCs and automobiles as examples; I would add the printing press, which expanded literacy and knowledge in previously unthinkable way, but has also caused the demise of countless forests for paper).

This post is already far too long, so I will conclude with two points:

*Hooray for Branson. It is incredibly important for people with his stature to take such a proactive stance. I hope the competition is unbearably intense and picking a winner near-impossible (in a good way). At the same time,

*Technology is only part of the answer; conservation is also hugely important. Let’s not let our Priuses and solar panels distract us from that. This essay on the Theory of [what I would be doing] Anyway makes that point better than I, so I will sign off with that.

Napster was the original user-generated content company. It was shut down in 2001, of course, after the Recording Industry Association of America sued the company for maintaining a database of songs that anyone could download without paying royalties or otherwise respecting copyright law.

A host of new file-sharing companies then rose up that didn’t maintain their own song databases. The RIAA sued several of those companies as well, resulting in the important Grokster decision by the US Supreme Court in June 2005. Grokster held that companies can be found liable for copyright infringement by distributing a “device” with the clear intent to promote infringement, as shown by affirmative steps to promote infringement. While these actions certainly didn’t put an end to illegal music file sharing, the battle lines are at least clear now in the music world.

Video is a different matter. Online video sharing has grown along a different trajectory and the issues there are overlapping, but distinct. Events over the past year have led me to believe that some businesses have taken the lessons of Napster/Grokster to heart, while others have not.

YouTube
The biggest non-learner of them all in both size and non-learningness. (There are a myriad other video sharing sites that feature copyright-infringing content just as prominently, so I will use YouTube here as a stand-in for all of them.) YouTube’s business is even more Napster than Napster itself: at least the latter company declined to host content. YT both hosts and indexes all of its videos. Its only hope for salvation is to appease the movie studios in a hurry (witness its rush to remove 100k videos two days following a demand from Viacom) while it desperately scrambles for a non-infringement-dependent business model. No wonder Google made a big public statement about keeping YT as a separate entity- bringing it in too close to Google’s core might expose Google to spillover liability.

Grouper
Here is a great example of an anti-YouTube. Founder Dave Samuel told me that staying on the right side of copyright was a critical piece of the puzzle from inception. Copyright violations may exist on the site, but they are much harder to find. Unfortunately, Grouper’s traffic is also a drop in the bucket compared to YT, which probably says a lot about what the market wants to watch.

Jumpcut
Another site that doesn’t depend on copyright violation, Jumpcut cleverly tries to focus users’ attention away from “pre-consumed” media grabbed from other places and toward the videos consumers themselves produce on digital cameras and phones. Jumpcut’s editing tools make it easy to cut and edit short clips, and their copyright-friendly position no doubt helped them to win content deals with Warner Brothers and Fox, and also to be acquired by Yahoo. Again, copyright infringement is relatively rare, and the focus on user-shot video makes an easy argument that the site lacks a “clear intent to promote infringment” under the Grokster standard. Jumpcut was acquired only six months after launch, so they have some time to figure out whether the public really wants to watch home video clips in significant numbers.

BitTorrent
The backbone of many filesharing applications, Bittorrent sees the spigot slowly closing on pirated content and is trying hard to find an infringement-free business model itself. It cut its own deal with Warner Brothers in May 2006 that led to more deals during the year. These moves are helping the company remake itself from the pirate’s best friend to a smart way for companies to save on bandwidth costs and promote content virally. This might be a stroke of brilliance from Bram Cohen and crew: BitTorrent’s history makes for a near slam-dunk case of clearly promoting infringement, so the company’s best bet is to make itself so useful to the studios that they couldn’t bring the hammer down without hitting their own thumbs.

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My name is Jay Parkhill. I am a corporate and licensing attorney at Parkhill Venture Counsel.

This is my blog, where you will find my ideas about startup companies, licensing, negotiation, sustainability, cleantech and bicycle racing.